Assetz® News - Buy-to-let sector 'strong in 2006'

Buy-to-let sector 'strong in 2006'

15th November 2006 |

Partly as a result of flourishing house prices and partly due to growing demand for rental properties, the UK's buy-to-let sector is showing signs of strong growth as we approach the end of the year, according to latest research.

This year is the tenth anniversary of the birth of the buy-to-let mortgage and it is a measure of how much the sector has grown that eight per cent of all mortgages are now granted to landlords.

Research from Council of Mortgage Lenders (CML) says that in 1998, there were only 28,000 buy-to-let loans taken out, whereas by 2004 this figure had swelled 24-fold to 701,900 and it appears that investor confidence is continuing in the same vein as June this year saw that 767,000 buy-to-let mortgages were outstanding.

Latest figures from CML show that buy-to-let lending in the first half of this year reached an all-time high for a six month period with lenders advancing 152,500 mortgages, 17 per cent up on the previous six months, worth £17.5 billion.

Over a million households, six per cent of the UK, now reside in the buy-to-let sector and the growing trend does not show any sign of abating.

Although latest figures from the Association of Residential Letting Agents show that the average weighted rental returns for houses and flats in the third quarter have fallen 5.2 to 4.9 per cent when compared with the previous three months, there are signs that demand is starting to pick up again.

UCB Home Loans, Nationwide's specialist lender, said that rental levels were gradually increasing in London and the south-east as can be seen by a reduction from 3.8 to 3.7 weeks in the average void period, that is, the time during which no tenant is occupying a property.

As all housing experts will know, trends in the capital are often precursors to tendencies nationwide due to the 'ripple' effect and so landlords across the country could be seeing their rental yields rise in the near future.

Keith Astill, managing director at UCB Home Loans, said that the boom in house prices, generally believed to be caused by a deficit in supply with respect to demand, shows that the need for housing is high across the UK, whether it be for purchasing or renting.

"The increase in people coming to work in the UK from other EU countries, coupled with the growth of universities, has also helped to expand the number of tenants looking for properties, giving landlords new opportunities for profitable property investment," he explained.

But he advised that strong demand is not a pre-requisite for profits: "Landlords can achieve significantly more – or less – than this, depending on how well they have judged the purchase price against the rental potential of the property."